Money Blog - What yield do I need? Summary

THE SCENARIO

John and Jane Smith are 53 years old, and hope to retire at 65. They have $250,000 currently sitting in a bond fund, earning them 2.8% per year. Their house will be paid off in 12 years, which will free up their current $1,330 mortgage payment (but not the taxes and insurance that they pay each month for their house). Of the $191,000 they originally borrowed, they still owe $97,500.(7% borrowing rate)

They've calculated that they'll need $875,000 in investments to retire after 12 years. Evaluating a variety of options, here's what the Smiths have discovered.

THE SOLUTIONS

• If they invest their $250,000 for 12 years, they need to earn 10.49% on their money.
• If they invest their $250,000 for 12 years, and add $250 per month, they need to earn 9.8% on their money.
• If they invest their $250,000 at 2.8% for 2 years, then at 18% for 1 year, they need to earn... Read more...